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Employees Belong in Cities, Not Just Cubicles

Originally published in Bloomberg News

March 6, 2013

Edward Glaeser (Glimp Professor of Economics, Harvard University)

Critics of Yahoo! Inc. (YHOO)’s recent ban on telecommuting say the policy will hurt productivity, while supporters say that making employees come into the office will help the struggling company.
But the decision, issued by Marissa Mayer, the chief executive officer, makes a larger point: Technological progress makes face-to-face contact more, not less, important. A complicated world needs personal interactions, and the cities that enable those interactions, to promote innovation.
Telecommuting itself is neither always right nor always wrong. Many commentators point to a recent study in which Chinese call-center workers were randomly chosen to work at home. The study, by Stanford University economist Nicholas Bloom and three co-authors, found that telecommuters were 13 percent more productive, with 9 percent of the increase coming from working more minutes per shift and 4 percent from handling more calls a minute.
The workers who stayed home were also more satisfied with their jobs, which isn’t surprising given China’s arduous commutes and often difficult working conditions.
Yet manning a call center can be simple, and simple tasks provide the best case for telecommuting. Productivity is easy to measure, especially if you care more about speed than customer satisfaction. Typically, companies don’t ask their call-center workers to be wildly creative. The relatively routine nature of these jobs explains why these places are often located in low- density areas of the U.S., such as Sioux Falls, South Dakota, or are outsourced across the planet. Zappos Success
One company -- Zappos.com Inc. -- has a different vision for its call centers. It has embraced face-to-face connections within the company and has close ties to the urban area where it is based. (Disclosure: I have given a paid talk at Zappos.) Zappos expects its salespeople to turn every phone conversation into a personalized interaction that cements the tie between customer and company.
That is specialized, even innovative work. It made sense that the company chose the Las Vegas area, with its cluster of hospitality and entertainment workers trained in personal interactions, over California’s Silicon Valley as its base.
Employees work closely together, and the chief executive officer, Tony Hsieh, thinks that the company will become even more creative by moving into the city center.
Humans can function perfectly well at home, but our greatest gift is the ability to borrow knowledge from the people around us. I can write sitting in my bedroom, but every decent idea I’ve ever had was the result of conversations with colleagues and students.
Experiments show that face-to-face contact makes it easier to resolve conflict and increase cooperation. I have collaborators across the planet, but those interactions all began in person.
Trading floors epitomize that kind of contact in a knowledge-intensive industry. In most sectors, people as wealthy as traders occupy comfortable offices with large desks, oak paneling and executive assistants. But trading floors eschew all that privacy because knowledge trumps space. There is no industry where insight can be transformed into a fortune more quickly than finance, which is why traders put up with dense workplaces and dense cities.
Although companies in all sectors can get good value out of stay-at-home workers, evidence shows that these employees often find that their work-related human capital hits a plateau. Spatial isolation means intellectual isolation from the experiences and ideas that circulate in office buildings and flow in client meetings. Urban Advantage
Hundreds of studies have documented how globalization and new technologies have increased returns in skill and education. My own work finds that while newcomers to cities don’t earn higher wages immediately, they experience faster wage growth, year by year, as they acquire skills.
Similarly, the Bloom study of the Chinese call-center workers also found that stay-at-home workers were less likely to be promoted, holding productivity constant, perhaps because they were less likely to acquire the knowledge that comes from being in the office. As ideas become more complicated, they are easier to lose in translation.
Thirty years ago the cyberseers predicted that new technology would make face-to-face contact, and the cities that facilitate that interaction, obsolete. The technoprophets were just as wrong as the geniuses who thought telephones would halt urban growth.
If technology made in-person contact unnecessary, then Mayer’s former employer, Google Inc. (GOOG), would have gotten rid of crowded working quarters. Instead, the company developed the Googleplex -- a vast office complex that physically connects its workers. The Googleplex provides amenities, such as volleyball courts and laundry rooms, meant to keep workers together for as long as possible in the hope that ideas continue to flow.
Facebook (FB) Inc. is building what Chief Executive Officer Mark Zuckerberg calls “the perfect engineering space: one giant room that fits thousands of people, all close enough to collaborate together.”
Mayer’s telecommuting ban at Yahoo builds on her experience at Google. Although the ban is extreme -- telecommuting would still make sense for some of the company’s workers some of the time -- it enabled Mayer to dramatically stress the advantages of face time. And a broad ban is easier to enforce than a more nuanced policy. To make it work, she may be pushed to provide more family-oriented amenities in the workplace.
The new Facebook site, the Googleplex and Yahoo’s telecommuting ban all demonstrate the technology industry’s awareness of the value of human connection within companies. But are they sufficiently attentive to this interaction outside their walls? The researcher AnnaLee Saxenian’s account of the rise of Silicon Valley emphasizes the importance of links across companies. Outside Inspiration
Jane Jacobs made a strong case that cities have long thrived by enabling intellectual exchange across industries and companies. A dressmaker invents the brassiere. A financier becomes an information-technology magnate. These leaps are easier in a dense, diverse metropolis, because there are many sources of insight and inspiration.
Maybe high technology is different, and it needs only learn from its own experts. Maybe Yahoo already has access to all the creative people it needs within its Sunnyvale, California, headquarters, as long as they don’t telecommute. But history hasn’t been kind to big companies that looked inward. I suspect that to succeed in the long run, Mayer is going to be at least as focused on having Yahoo’s workers learn from outsiders as from insiders.